Hindalco Industries - Cost Pressure in Aluminium Business - ENAM Direct

Hindalco's Q2 standalone EBITDA at Rs 5.2 bn and PAT at Rs 3.6 bn were lower than our and consensus expectations due to higher than expected cost pressure in aluminium business. Aluminium EBIT declined 37% QoQ to Rs 1.7 bn primarily led by external power purchases during the quarter. Adj. PAT was Rs 3.6 bn (down 29% YoY).

Key highlights

- Aluminium business: Production at 128 kt was down 11% YoY. The company witnessed cost pressure across the board, ie. caustic soda, coal, and fuel. The company was also forced to buy high cost power from Orissa grid due to floods which led to lower coal availability. The situation should normalize going forward as coal availability improves. However, cost pressure in other inputs is likely to continue.

- Copper business: Production at 78 kt was up 5% YoY. Segment EBIT recovered to 2.1 bn (in line) vs. 0.8 bn in Q1. EBIT in Q1 was impacted due to maintenance shutdown and low by-product realization.

- Novelis: Shipments of rolled products were flat YoY/QoQ at 719 kt. Adjusted EBITDA was at USD 277 mn (down 8% YoY).

Maintain estimates, BUY rating

We retain our EPS estimates (Rs 12.6 in FY13 and Rs 12.7 in FY14) and SOTP based target price of Rs 134 (refer page 2). We have currently not assigned any value to Utkal Alumina CWIP due to continuous delay in commissioning. We will assign a value to the project once we have clarity on commissioning.

Source : Equity Bulls

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